Banks get Rs 2,500-cr share in Electrosteel

To swap debt for equity at face value of Rs 10

In FY15, Electrosteel Steels reported a net loss of Rs 624 crore on the back of Rs 1,831 crore in revenues. (Reuters)

Lenders to the loss-making, Kolkata-based Electrosteel Steels have decided to convert Rs 2,507.57 crore of loans into shares at a value of Rs 10 apiece, sources told FE. The move is part of a strategic debt restructuring (SDR), a scheme outlined by the Reserve Bank of India (RBI) earlier this month. The Electrosteel stock closed at Rs 2.98 on Tuesday, on the BSE, down 1.65% from its previous close.

Lenders have 18 months from the date the SDR scheme is effective to find a buyer for the company. Should banks fail to usher in a new promoter, the asset would be classified as a non-performing asset.

While Tata Steel and a Singapore-based investor had shown interest, bankers are yet to come up with a new promoter. According to two senior bankers, most banks have given their individual consent to the SDR package, which will likely be implemented by the end of November.

The RBI’s SDR guidelines allow banks to convert debt to equity at a value which is not less than its face value. “While there is a notional loss, since the stock is currently priced at close to Rs 3, banks are not required to show a mark-to-market (MTM) loss for SDR conversions,” a banker explained.

In FY15, Electrosteel Steels reported a net loss of Rs 624 crore on the back of Rs 1,831 crore in revenues.

Its interest expenses more than doubled to Rs 452 crore. The company’s gross debt at the end of March 2015 was Rs 10,235 crore, up 13% over the previous year, according to Bloomberg data. Term loans restructured by banks stood at Rs 5,768 crore.

Ashutosh Agarwal, chief financial officer, Electrosteel Steels, could not be reached for a comment.

The consortium comprises 27 lenders who agreed to restructure the company’s debt via the corporate debt restructuring (CDR) cell in September 2013, while IL&FS and HUDCO recast their debt outside of the CDR cell.
The company is promoted by Electrosteel Castings, which owns 45.23% of the equity; Electrosteel Castings is owned by the Kejriwal family. Electrosteel needs around Rs 1,300 crore to complete its 2.51 million tonnes per annum integrated steel and ductile iron pipes project in Bokaro, Jharkhand.

The company’s problems began when it failed to draw down a project loan of Rs 824 crore because sanction from one of the banks had expired. The company’s CDR package was approved on September 26, 2013, with additional term loans of Rs 1,307.1 crore being sanctioned to help it complete the project (Rs 1,107.10 crore for the capex and Rs 200 crore for shoring up working capital).

Following rules put out by the RBI in June this year, bankers have decided to try out a restructuring for a handful companies including Electrosteel Steels, Jyoti Structures, Lanco Teesta Hydro Power, Monnet Ispat and Coastal Projects.

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